Monday Market Minute | Mar 01, 2021

Canadian housing mania builds with no policy response in sight

What Moved

CREA's February data painted a staggering picture: national home prices rose over 25% year-over-year, with certain GTA and suburban Ontario markets exceeding 40%. The sales-to-new-listings ratio — the most reliable measure of market tightness — hit levels not seen since the late 1980s. CMHC maintained a cautious stance but stopped short of recommending new macroprudential measures. The BoC continued to characterize housing strength as a reflection of pandemic-altered preferences rather than a speculative bubble.

Why It Matters

Private market investors had significant indirect exposure to this dynamic. MIC portfolios backed by residential development loans saw collateral values inflating rapidly — a positive for loss-given-default ratios but a concern if prices reversed. Private REIT valuations were lifted by the rising tide. The key risk was that policy inaction was allowing imbalances to compound, making an eventual correction sharper.

Signal to Watch

The federal budget, expected in April, was the next likely venue for housing policy intervention. Any signals of a foreign buyer tax expansion, vacancy levies, or tighter mortgage stress tests would reverberate through private real estate portfolios.

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